Assignment from 2013 when Graph Search was just introduced to Facebook: How will social search transform the way we use social media?

1. 1
INFORMATIONMANAGEMENT
Facebook Graph Search
How will social search transform the way we use social media?
Word Count:
1965

2. 2
Table of Contents
1. Executive Summary................................................................................................3
2. Introduction ..............................................................................................................4
3. Conceptual Framework..........................................................................................5
3.1. Porter’s Five Forces ........................................................................................5
3.1.1. Rivalry Amongst Competitors.................................................................5
3.1.2. Threat of Potential New Entrants...........................................................6
3.1.3. Bargaining Powers of Suppliers.............................................................6
3.1.4. Bargaining Power of Buyers ...................................................................6
3.1.5. Threat of Substitutes................................................................................6
3.2. VRIO Framework.................................................................................................8
4. Analysis ....................................................................................................................8
4.1. Application of Porter’s Five Forces ...............................................................8
4.1.1. Rivalry Amongst Competitors Medium................................................8
4.1.2. Threat of New Entrants Low .............................................................. 11
4.2. VRIO Framework Graph Search................................................................ 12
4.2.1. Value ....................................................................................................... 12
4.2.2. Rarity....................................................................................................... 12
4.2.3. Inimitability.............................................................................................. 12
4.2.4. Exploitation by Organization................................................................ 13
5. Findings ................................................................................................................. 14
6. Conclusions/Recommendations........................................................................ 15
7. References:........................................................................................................... 16

3. 3
1. Executive Summary
The aim of this report is to critically analyze the market environment for the
newly introduced search engine of Facebook, the so-called Graph Search.
The first section of this report lays an analytical and conceptual foundation by
exploring Porter’s Five Forces and the VRIO Framework, which is extracted
from the Resource-Based View of the Firm.
In order to assess the competitive environment for Graph Search, this report
then applies Porter’s Five Forces Framework. This is followed by an analysis
of Facebook and specifically Graph Search’s resources and capabilities,
broken down into layers based on the VRIO Framework.
Following the analysis, this report postulates that the rivalry for Graph Search
is medium, as Facebook faces Google as a giant rival that could follow the
former’s footsteps in the near future. Meanwhile, VRIO Analysis suggests that
Graph Search will provide Facebook with temporary competitive advantage.
Finally, this report concludes by recommending numerous possible future
development strategies. Besides suggestions such as partnerships with
LinkedIn or indexing Instagram, this report advises Facebook to find a
sustainable way to monetize their new venture; establishing a review and
advertising system for places and interests could do this.

4. 4
2. Introduction
Facebook has announced to launch a new feature, the so-called “Graph
Search”, to inject search into social media. This report aims to provide an
understanding of how massive amounts of data has become a crucial tool for
leading companies to outperform their peers.
In particular, this report will focus on how Facebook is using the availability of
data not only to improve user experience but also to create a competitive
advantage. Facebook’s mission is to make the world more open and
connected. (Facebook 2013) They are enabling users to map out the stories
of their life by giving them tools to create their very own “social graph”. The
social graph is the sum of all the various connections, which provides a large
base for users to be able to connect. So far, Facebook’s ecosystem uses two
tools, the Newsfeed and Timeline. (See Figure 1) To leverage existing
connections and with graph search, they are hoping to create a platform for
new discoveries. (Facebook Graph Search Announcement, 2013)
Figure 1, Source: Marketingofadifferentcolor.com

5. 5
This topic has been chosen, as Graph Search will have a strong impact on
how people use Social Media in the future and is also relevant for competitors
to determine innovative ventures in order to keep up.
Due to its novelty, there had not been any academic article specifically for
Graph Search. However, in order to establish how valuable social search is,
the effectiveness of word of mouth advertising has been considered.
By applying Porter’s 5 Forces, this report strives to assess Facebook’s
position in the current market environment. More specifically, this report will
focus on two relevant forces, the rivalry amongst competitors and the threat of
new entrants. In addition, the VRIO Framework shall provide an insight to if
Facebook can use Graph Search to build long-term sustainable competitive
advantage. Furthermore, the report will conclude by stating its findings as well
as by recommending ways to monetize their new technology and other
possible future actions.
3. Conceptual Framework
3.1. Porter’s Five Forces
Porter’s framework was established in 1979 to highlight the fact that industry
competition does not only occur amongst today’s direct rivals. Constant
striving for higher profitability goes beyond the direct industry rivalry as it
considers four additional forces. As Figure 2 illustrates, the 5 forces interact
as follows:
3.1.1. Rivalry Amongst Competitors
High intensity of rivalry in a market threatens firms by reducing profits.
Intense rivalry occurs habitually amongst competitors of similar sizes
and market influence, especially if there are a high number of
competitors. In case the market is more concentrated, competitors are
likely to recognize their reciprocal interdependence and contain their
rivalry.

6. 6
3.1.2. Threat of Potential New Entrants
Incumbents intend to keep new competition out of their market as
much as possible by increasing the costs of entering the market. The
higher the barriers to entry, the harder it is to gain ground in the market.
3.1.3. Bargaining Powers of Suppliers
Suppliers, which provide the company with inputs, may influence the
firm by raising prices or reducing the quality of their goods. The extent
to which they may pressure the market lies in the uniqueness of their
good or in the number of incumbents that provide the same good.
3.1.4. Bargaining Power of Buyers
The more buyers exist, the lower their bargaining power and vice-versa.
3.1.5. Threat of Substitutes
If the costs of switching to a substitute are low, firms can be strongly
threatened by losing their customers to them. Therefore, companies
constantly focus on enhancing customer value in order to reduce the
attractiveness of the substitute.
(Harvard Business Review, 2008)

7. 7
Figure 2, Source: Peng 2009
1
Rivalry
amongst
Competitors
4
Buyers
5
Substitutes
3
Suppliers
E

8. 8
3.2. VRIO Framework
The resource-based view evaluates resources and capabilities in order to
establish a firm’s sustainable competitive advantage. It does so by assessing
if their resources and capabilities are valuable, rare, inimitable and if their
organizational structure is able to mobilize those resources onto the market.
(See Figure 3)
Figure 3, Source: Peng 2009
4. Analysis
4.1. Application of Porter’s Five Forces
4.1.1. Rivalry Amongst Competitors Medium
So far, Graph Search is one of its kind. In order to determine the competition
on Graph Search’s level and to understand its complexity, it is essential to
look at the current market environment for both the Search Engine market as
well as the Social Media market.

9. 9
Figure 4, Source: Karmasnack 2013
As illustrated in Figure 4, Google is triumphantly holding an excessive market
share of 88.8% of the global search engine market in 2013. (Karmasnack,
2013) In order to unify all their services and respond to the increasing need
for connecting and sharing online, Google created Google+ in 2011, which is
their version of a Social Network. The company had been criticized for not
having comprehended the importance of social information early enough, as
they only jumped in once Facebook and Twitter had already driven the market.
(Miller, 2011)
This is where the rivalry needs to be examined from a social perspective.
88.80%
4.20%
3.50% 2.40% 0.60%
0.50%
Global Search Engine Market Share
2013
Google
Bing
Yahoo
Baidu
Ask.com
Other

10. 10
Figure 5, Source: Dreamgrow, December 2012
As demonstrated in Figure 5, Facebook dominates the market with a share of
62.46% followed by YouTube and Twitter. (Greamgrow, December 2012)
Google Plus so far only holds a share of 0.69%.
For Graph Search specifically, Google, due to its powerful search engine and
embedded social network, currently is the only market player that could
compete in its league. Graph Search will have first mover advantage in
introducing search into social media. Even though Mark Zuckerberg (2013)
has specifically stated, that “Graph Search is not web search”, it diverts to
Microsoft’s search engine Bing in cases where Graph Search comes up blank,
which will be the case regularly in its infancy. Given Facebook’s user
frequency, it is inevitable for users to start using Bing out of convenience
when using Graph Search. This will therefore directly challenge Google’s
search function and might decrease its market share.
Even if Google were to copy Facebook’s move and index their social
database to be organized by an additional search function, their significant
disadvantage is the lack of Google Plus users, which ultimately results in
61.46
22.2
1.98 1.07
0.85
0.69
0.63
0.52
0.38
Social Media Market Share 2012 in %
Facebook
Youtube
Twitter
Pinterest
Yahoo Answers
Google+
Linkedin
Instagram

11. 11
absence of valuable user information. Google is very aware of the challenge
that is coming their way and has thus adopted an aggressive acquisition
strategy for their social network. Google Plus interconnects all of Google’s
products. As a consequence, it cross-promotes its services such as Gmail
and YouTube to increase the quantity of users signing up to Google Plus. It
has therefore managed to acquire a staggering number of 500 million users in
a considerably short period of time. However, if broken down to actual active
users, the number drops to 135m users per month. (Chapman 2013) In
comparison with Facebook’s 1 billion active users per month, Google has a
significant gap to fill. It is implied that the rivalry in the Social Media search will
increase over time. Therefore, the rivalry is considered medium in the social
search industry.
Figure 6
4.1.2. Threat of New Entrants Low
To ensure steady profitability, it is a matter of great interest for incumbents to
keep out potential entrants. In order to do so, the companies try to augment
the barriers to entry to reduce the incentives to enter the market. Usually, high
initial capital investments form a great obstacle for new entrants. In the
Online-based business industry, however, a new network can be established

12. 12
at relatively low cost. On the other hand, to compete with the giant
incumbents, it is crucial to obtain enormous amounts of capital to establish a
competitive infrastructure. What is also fundamental is superior technological
know-how. What turns out to be the highest barrier is to create a product so
differentiated and unique that will mobilize users to switch and furthermore,
the ability to compete with the current market leaders. As the VRIO
Framework will later demonstrate, Facebook has set the barriers very high as
their massive database of valuable user information cannot be recreated and
therefore leads to a competitive advantage for them.
4.2. VRIO Framework Graph Search
4.2.1. Value
Facebook currently holds two immense factors that might make their business
valuable, which are the high number of users (over 1 billion) and the quality of
information. So far, however, the abundance of data has been rather
problematic for Facebook to create actual value. Therefore, it has been long
awaited for Facebook to develop new ways to utilize its mountains of data
lucratively. It is argued that word of mouth advertising is a very powerful tool
to influence consumer behaviour. (Harrison-Walker 2001) Therefore, the fact
that it enables users to search for interest, people, photos and places that
their friends recommended- the search results are highly valuable. Moreover,
instead of links that might refer the user to the answer he is looking for, Graph
Search directly delivers the answer on-screen.
Even though Graph Search will improve the user experience drastically, it is
questionable if it will be able to drive revenues- Facebook has not announced
how they are going to monetize their new venture.
4.2.2. Rarity
Facebook’s database with high quality information is a unique resource.
Furthermore, visionary staff and extraordinary technological competency
make their capabilities rare.
4.2.3. Inimitability

13. 13
Facebook’s intangible resources, such as tactic knowledge, superior
motivation and managerial talents are exceptionally difficult to imitate. Mark
Zuckerberg’s primary goal is to make an impact. Monetizing his inventions
come rather secondary, which is absolutely priceless to the company’s
success in terms of innovation. Furthermore, creating an interface similar to
Graph Search is doable, but gaining the same amount of users and valuable
information is not imitable in the near future.
4.2.4. Exploitation by Organization
A lot of factors contribute to Facebook’s innovation success- starting with its
organizational structure. Much like Google (Iyer, Davenport, 2008) Facebook
provides an open, unstructured and collaborative platform for employees to
foster innovation. The flat hierarchy and informal atmosphere encourage the
flow of communication. (ABC news interview) Their location also plays a vital
role, as their headquarters is located in Silicon Valley, where infrastructure
and qualified human capital, are abundant. (Business Insider Innovation
Video)
By combining its complementary assets, Facebook develops and leverages
the full potential of its resources and capabilities, which has enabled them to
create Graph Search and mobilize its value onto the market.

14. 14
Figure 7
5. Findings
The analysis of both Porter’s Five Forces and the VRIO Framework resulted
in the fact that Facebook, with the first mover advantage, will enjoy a
temporary monopoly in the Social Media Search industry. The rivalry will
increase over time if Google injects search into Google Plus. Even if they
decide to do so, Facebook will hold an invaluable advantage of having seven
times more active users, which results in a far more accurate and valuable
search result than Google could provide with their limited users and shared
content.

15. 15
6. Conclusions/Recommendations
It can be concluded that Graph Search will transform the way people will use
Social Media and the Internet as a whole. With its introduction, Facebook
challenges Google on another level, before they could even catch up with
their social layer. In order to sustain their competitive advantage, it is advised
that Facebook encourages users to update their pages to ensure more search
accuracy. Facebook also might actively acquire businesses for them to
establish proper business pages to be linked to “places”. As it is highly
recommended for Facebook to find a way to drive revenues with Graph
Search, in order to stabilize their position in the stock market, this could be
taken further by incorporating an active review and advertising system for
places and interests.
It is also worth considering partnerships with other social networks such as
LinkedIn to leverage their recruiting platform. Additionally, indexing Instagram
pictures will add more diversification to their database and possibly attract
more users.

16. 16
7. References:
ABC News, Inside Facebook Interview (2010) [video]
http://www.youtube.com/watch?v=MSSeDJPVfrY
Accessed 17.02.2013
Barnett, E. (2011), Facebook power users 'have gone to Google+ and Twitter'.
Available from:
http://www.telegraph.co.uk/technology/facebook/8833593/Facebook-power-
users-have-gone-to-Google-and-Twitter.html [Accessed: February 17, 2013].
Blodget, H. (2010), Innovation Series: Mark Zuckerberg. Available from:
http://www.businessinsider.com/innovation-series-mark-zuckerberg
[Accessed: February 17, 2013].
Boissonneau-lehner, D. (2010), Organizational Culture’s Role in Facebook’s
Success. Available from:, Web site:
http://blogs.ubc.ca/daniellehner/2010/10/26/organizational-cultures-role-in-
facebooks-success/ [Accessed: February 13, 2013].
Carroll, R., & (2013), Facebook's Graph Search to take on Google and help
users . Available from:
http://www.guardian.co.uk/technology/2013/jan/15/facebook-announcement-
graph-search-mark-zuckerberg [Accessed: February 1, 2013].
Chapman, M. (2013), "The Marketing Interview- Marvin Chow Google +",
Marketing Magazine, Feb 6, pp.15-16.
Hensel, T., Facebook Graph Search Announcement (2013) [video] .
https://www.youtube.com/watch?v=c-E3cfPHjeYAccessed 17.02.2013

17. 17
Iyer, B. & Davenport, T.H. (2008), "Reverse Engineering Google’s Innovation
Machine", Harvard Business Review, vol., no. pp. 64,66.
Karmasnack (2013), Search Engine Market Share . Available from:
http://www.karmasnack.com/about/search-engine-market-share/ [Accessed:
February 13, 2013].
Lorrens, D. (2013), Plus-One This: Proof That Google Plus Will Prevail. Available
from:, Web site: http://www.fastcompany.com/3004448/plus-one-proof-
google-plus-will-prevail [Accessed: February 13, 2013].
Mcguire, T., Manyika, J. & Chui, M. (2012), Why big data is the new
competitive advantage . Available from:
http://www.iveybusinessjournal.com/topics/strategy/why-big-data-is-the-new-
competitive-advantage#.UQa6eOhQo7A [Accessed: February 1, 2013].
Miller, C. 2011, Another Try by Google to Take On Facebook
http://www.nytimes.com/2011/06/29/technology/29google.html?pagewanted=
all&_r=0
Porter, M.E. (2008), The Five Competitive Forces That Shape Strategy.
Available from: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-
strategy/ar/1 [Accessed: February 12, 2013].
Worstall, T. (2012), And Now For Facebook's Real Problem: Data Is
Becoming Less Valuable. Available from:
http://www.forbes.com/sites/timworstall/2012/05/26/and-now-for-facebooks-
real-problem-data-is-becoming-less-valuable/ [Accessed: February 2, 2013].
Williams, D. (2013), How Facebook's Graph Search Will Dethrone Google
Search. Available from: http://adage.com/article/digitalnext/facebook-s-graph-
search-dethrone-google-search/239509/ [Accessed: February 1, 2013].

18. 18
Weber, T. (2012), Facebook buys Instagram photo sharing network for $1bn.
Available from: http://www.bbc.co.uk/news/technology-17658264 [Accessed:
February 13, 2013].